Many people have heard the term "liquidity" when trading Bitcoin, but not many truly understand what it is. Simply put, liquidity is the ability to quickly buy or sell large amounts of Bitcoin without crashing the price. It reflects how active the market is and how many participants are involved.

Why should we care about this? The reasons are quite practical.

First, in a high-liquidity market, your orders can be filled quickly. No need to wait around or worry about significant slippage. If you want to sell in a trending market, high liquidity means you won't get caught in a bad position. Second, large orders are less likely to cause a market crash. Sufficient liquidity limits the impact of a whale's buying or selling actions, preventing the entire market from fluctuating wildly due to one or two orders. Additionally, in active markets, Bitcoin's price more accurately reflects supply and demand and is less susceptible to manipulation. The last point is also crucial—high liquidity means lower risk. You don't have to worry about not being able to sell when you want to, which is a big boon for traders.

What influences liquidity?

The most direct factor is trading volume. The more participants, the better the liquidity. Leading assets like Bitcoin and Ethereum inherently have high liquidity. Next is the number of exchanges. The more exchanges that offer Bitcoin trading, the better, as users have more options and the market becomes more active. Centralized platforms like major exchanges usually have ample liquidity, which is why most retail traders prefer trading on such platforms.